Taxes and Accounting for Expats Running a Business in the UK
Introduction
Starting and running a business in the UK as an expat can be an exciting and rewarding journey. However, one of the most complex parts of this journey is understanding the UK’s tax and accounting system. From registering your business with HMRC to filing annual accounts and ensuring compliance with tax regulations, there are many important steps you need to take. Unlike local entrepreneurs, expats often face additional challenges—such as navigating international tax rules, understanding residency status, and dealing with currency transfers.
This guide provides a step-by-step explanation of taxes and accounting for expats in the UK, breaking down everything from corporation tax to VAT, payroll, and double taxation agreements. By the end of this article, you’ll have a clear picture of how to handle business finances as an expat in the UK.
1. Understanding the UK Tax System
1.1 HMRC and Tax Responsibilities
In the UK, Her Majesty’s Revenue and Customs (HMRC) is the government body responsible for tax collection. As a business owner, you are required to:
- Register your business with HMRC.
- Pay taxes on business profits.
- File accurate tax returns annually.
- Keep accounting records for at least six years.
1.2 Residency and Tax Implications for Expats
Your tax residency status plays a key role in determining how you are taxed.
- Resident for tax purposes: You may be taxed on worldwide income.
- Non-resident: You are taxed only on UK-sourced income.
The UK uses the Statutory Residence Test (SRT) to determine your residency status, based on the number of days you spend in the UK and your ties to the country.
2. Types of Businesses and Their Tax Responsibilities
2.1 Sole Trader
- Pay Income Tax on profits.
- Pay Class 2 and Class 4 National Insurance contributions (NICs).
- Keep personal and business finances separate for clarity.
2.2 Partnership
- Similar to sole traders, but each partner reports their share of profits on their personal tax return.
- A Partnership Tax Return must also be filed.
2.3 Limited Company
- Pay Corporation Tax on profits (currently 25% in 2025 for companies earning above £250,000, with small profits rate at 19%).
- Directors must file Self-Assessment Tax Returns.
- Shareholders pay tax on dividends.
- Must file annual accounts with Companies House and Corporation Tax Return (CT600) with HMRC.
3. Key Business Taxes for Expats
3.1 Corporation Tax
- Paid by limited companies on taxable profits.
- Must be filed and paid within 12 months of the company’s financial year-end.
3.2 Value Added Tax (VAT)
- Businesses must register if turnover exceeds £90,000 (2025 threshold).
- Standard VAT rate: 20%.
- VAT returns must usually be submitted quarterly.
3.3 Income Tax
- Paid by sole traders and individuals receiving income.
- UK income tax bands (2025):
- 0%: up to £12,570 (personal allowance)
- 20%: £12,571 – £50,270
- 40%: £50,271 – £125,140
- 45%: above £125,140
3.4 National Insurance Contributions (NICs)
- Sole traders and employees must pay NICs.
- Employers must also contribute to NICs for their employees.
3.5 Payroll Taxes (PAYE)
- Employers must operate Pay As You Earn (PAYE) to collect Income Tax and NICs from employees’ salaries.
4. Accounting Requirements for Expats
4.1 Record Keeping
Businesses must keep accurate financial records, including:
- Sales and income
- Expenses
- Employee records
- VAT records (if applicable)
4.2 Annual Accounts
- Limited companies must prepare statutory accounts in line with UK GAAP or IFRS.
- Accounts must be filed with Companies House.
4.3 Self-Assessment
- Sole traders and directors must file an annual Self-Assessment Tax Return.
- Filing deadline: 31 January following the end of the tax year (5 April).
4.4 Making Tax Digital (MTD)
- The UK has introduced Making Tax Digital, requiring businesses to keep digital records and submit tax returns using approved software.
- VAT-registered businesses are already required to comply with MTD.
5. Special Considerations for Expats
5.1 Double Taxation Agreements (DTAs)
- The UK has treaties with over 130 countries to prevent double taxation.
- Expats can claim relief if they pay taxes in both the UK and their home country.
5.2 Currency Exchange and Remittances
- Consider how profits transferred abroad will be taxed.
- Be aware of exchange rate fluctuations when converting business earnings.
5.3 Overseas Income and Transfer Pricing
- Expats with international businesses must comply with transfer pricing rules to ensure fair transactions between UK and overseas entities.
6. Hiring an Accountant as an Expat
Navigating UK taxes can be challenging. Hiring a qualified accountant can help you:
- Register with HMRC and Companies House.
- Manage payroll, VAT, and corporation tax filings.
- Ensure compliance with UK tax laws.
- Advise on tax efficiency strategies.
Look for accountants registered with:
- The Institute of Chartered Accountants in England and Wales (ICAEW)
- The Association of Chartered Certified Accountants (ACCA)
7. Practical Steps for Expats to Stay Compliant
- Register your business promptly with HMRC.
- Open a UK business bank account for clarity and compliance.
- Use accounting software that complies with MTD, such as QuickBooks, Xero, or Sage.
- Track expenses carefully to maximize deductions.
- Plan for taxes—set aside a percentage of profits to cover tax liabilities.
- File tax returns on time to avoid penalties.
- Consult with tax professionals if you have income abroad.
8. Common Tax Mistakes Expats Should Avoid
- Failing to register for VAT on time.
- Mixing personal and business finances.
- Missing filing deadlines (fines can be up to £1,500).
- Ignoring double taxation agreements.
- Not keeping digital records.
9. Future Trends in UK Taxation for Businesses
- Increased digitalisation under Making Tax Digital.
- More scrutiny of international transactions due to global tax reforms.
- Potential changes to corporation tax rates depending on government policies.
- Growing importance of sustainability reporting in accounting standards.
Conclusion
Running a business as an expat in the UK requires not only entrepreneurial skills but also a clear understanding of the country’s tax and accounting system. From corporation tax to VAT, payroll, and international tax treaties, there are many areas to stay compliant with. The key takeaway is to stay organised, keep accurate records, and seek professional advice when needed.
By mastering UK taxes and accounting, expats can focus on growing their businesses confidently, knowing they are on the right side of the law.
